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The Lean Hog Perspective

RSS By: Jeremy Knutson

This lean hog and feed commentary contains thoughts from Jeremy Knutson, a commodity broker with Hurley & Associates.

Hog & Corn Comments - 10-09-08 - WOW, a follow through rally in corn and meal!

Oct 09, 2008

 

Hog Comments - 10-09-08 - WOW, a follow through rally in corn and meal!

 

Jeremy Knutson
1-877-212-2564
jknutson@hurleyandassociates.com

CORN
Dec '08 opened slightly lower than the overnight close this morning and the first hour trade for corn soybeans and soybean meal were all negative.  If the market is trading lower at 10:30 a.m. cst than where it opened there is approximately an 80% chance it will close the day below the open.  The exact opposite is true for the market trading higher at 10:30 a.m. cst.  

Like I said above, the markets were all negative during the first hour of trade but managed to fall in the 20% category today instead of the 80%.  Today was the day I have been looking for; we closed above a prior day high and went against the odds by closing above where we opened the day session.  The big question now is, are we moving higher because we are seeing fresh buying or is it short-covering going into tomorrows USDA monthly crop production report?

I mentioned yesterday that it seemed like the market was not taking as much direction from the outside markets like it had been in recent days/ weeks.  As I said yesterday if feels like the Ag markets have divorced themselves from the outside markets and today reinforced that thought.  Tonight will be the big test because the Dow(n) Jones plummeted today after the grain markets closed.

Bottom line - I expect Dec '08 to be steady to mixed tonight with no major volatility because of USDA crop production report tomorrow at 7:30 a.m. cst.  The approximate trade guess for corn yield is 152.3 bushels per acre.  From an intra-day perspective the hourly chart could retrace back to the $4.36 1/2 to $4.35 area.  The trade tomorrow will depend on the USDA report but the charts suggest a higher move.  Report days you can throw charts out the window at least for the first hour.  I think it will be difficult for the market to move much lower on bearish news because of how far we have dropped already.

 

MEAL
Dec '08 meal opened stronger today and was firm for the balance of the day.  We had a period during the session where we traded close unchanged but never got lower and made a rally toward the end of the day to close near the session high.  The soybean and meal market didn't follow the Crude Oil market today which was down over $4.00 today so this is a good sign we may be getting our Ag markets back to trade our own fundamentals.

Dec '08 reached my first area of resistance today which was $276.60 but failed to get to $283.10.  We closed the market at $276.00 today which still signals a potential test of $283.10 sometime in the near future.  Like I said yesterday I am more comfortable with soybean meal being friendly because of the nice close we had yesterday and todays close was fair.  My cycle indicator has meal making a move lower tonight/tomorrow but again with a crop report out in the morning it is hard to predict action with any great accuracy.  I am not too impressed with the USDA after its little 1.3 million acre flub in the Sep 30th stocks report.  

Bottom line - I am cautiously friendly meal and look for more follow through to the upside in the week to come.  Again tonight/tomorrow will be a test of how much independence the Ag markets have taken on after the Dow(n) Jones decided to fall apart once again today.  The intra-day chart suggests a possible test of $273.70 down to $270.20 tonight or tomorrow.  The daily charts are friendlier than this and so am I.  I hope you have option coverage in place for meal needs.

 

HOGS
Dec '08 traded quite well today in my opinion considering the fundamental news we received last night in cutout and again this morning in the cash bids.  The cutout was down $2.58 last night and the noon USDA cash report had cash down around $4.00 cwt.  The market just seemed to brush this information off as it was happening.

It was impressive to see the market hold on negative news in especially since the market has rallied over the past couple of days.  We closed the market at $61.12 today which is above my support of $60.65 to $60.25.  The cash and cutout were both negative again tonight which should again apply negative pressure to the market tomorrow.  If the market closes below $60.65 tomorrow I would expect a test of $60.25 rather quickly because it isn't t that far away and then a possible test of $58.77.

Bottom line - the Dec '08 globex contract is trading $.72 lower as I write this at 5:25 p.m. cst.  I would expect continued weakness tomorrow from hogs and if the USDA crop production report is negative tomorrow it could add fuel to the fire.  One can only imagine that the Dow Jones will be lower tomorrow so if we have a negative USDA report it could be a nasty day.  We need a close above $60.65 tomorrow if we want to salvage this little rally we have/had going.

 

USDA ESTIMATED PORK CARCASS CUTOUT
Based on FOB Omaha carlot pork prices and industry yields.

           Calculations for a 200 lb Pork Carcass
        53-54% lean, 0.65"-0.80" backfat at last rib
-----------------------------------------------------------------------
         Total                   Today's Primal Cutout Values
Date     Loads      Carcass    Loin    Butt   Pic     Rib   Ham  Belly
-----------------------------------------------------------------------
10/09        62.3      68.83   92.58   69.58  47.73  90.19 57.25  75.98
Change :               -0.92    1.25   -0.56  -5.25    unc -1.87  -0.81
-----------------------------------------------------------------------

 

National Direct Hog Price Comparison

--------------------------------------------------------------------------
                :  National   :    Iowa     :   Western   :   Eastern
                :             :  Minnesota  :  Cornbelt   :  Cornbelt
--------------------------------------------------------------------------
   Base Price is the price from which no discounts are subtracted and
   no premiums are added.
--------------------------------------------------------------------------
BARROWS & GILTS :  2.59 lwr   :  2.93 lwr   :  2.74 lwr   :  1.54 lwr
Negotiated      :             :             :             :
CARCASS BASIS   : 55.50-68.92 : 55.50-68.92 : 55.50-68.92 : 56.00-64.86
185 lb Base Hog :   wtd avg   :   wtd avg   :   wtd avg   :   wtd avg
Plant Delivered :    63.62    :    64.77    :    64.94    :    61.15
--------------------------------------------------------------------------
Head Count      :   23,031    :    9,736    :   14,996    :    7,835
==========================================================================

 

Hurley & Associates believes positions are unique to each person’s risk bearing ability; marketing strategy; and crop conditions, therefore we give no blanket recommendations. The risk of loss in trading commodities can be substantial, therefore, carefully consider whether such trading is suitable for you in light of your financial condition. NFA Rules require us to advise you that past performance is not indicative of future results, and there is no guarantee that your trading experience will be similar to the past performance.

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